At the 26th Conference of the Parties in Glasgow, Article 6 created guidelines for carbon credits. Image courtesy of Shutterstock/Chris Dorney

An agreement was reached at COP26 last month on the international trading rules for carbon credits, a series of negotiations called Article 6. But on the last weekend of the conference, 200 countries finally agreed on guidelines for creating an international market for carbon credits, including country-to-country exchanges of these tools. 

For companies that purchase offsets and the two major verification organizations Verra and The Gold Standard, Article 6 is the government’s long-awaited guidance on creating, accounting, and verifying carbon credits. Prior to this, the private sector has largely developed the foundation . 

Chirag Gajjar, head of local climate action within the World Resources Institute's climate plan, said that the rules agreed in Glasgow will make the offset plan more stringent.

“This is the rule book we have been waiting for,” adds Renat Heuberger, CEO of South Pole, who advises on carbon emission reduction projects. "It makes it clear that we need to really increase the private sector's large-scale investment in truly large-scale emission reduction projects."

Article 6 is based on the Clean Development Mechanism (CDM) in the 1997 Kyoto Protocol. CDM has established rules for carbon markets and offset projects, including definitions of additionality and leakage. Unfortunately, suspected abuse of these carbon trading practices has been scrutinized for actually increasing emissions, which raises many questions about the credibility of the voluntary offset market. 

Heuberger said: "We want to remove the dust from this mechanism, modernize it and put it back into use," Heuberger said. "With the development of science, as you get better data, better satellite images, and more With good quantitative tools, this mechanism will become better and better."

Article 6 also covers how countries engaged in the international transfer of carbon credits can avoid double counting. This process is called corresponding adjustment. It also allows the conversion of existing certified emission reductions (CER) (a type of carbon credit issued by the CDM) into an international transfer of mitigation results (ITMO), which is a new carbon emission reduction unit created by the Paris Agreement And trade between countries. 

Gajjar said that the passage of Article 6 means that the carbon market rule book required by the Paris Agreement has finally been finalized. But he said that countries must still provide guidance for putting the framework into practice. To this end, the regulator plans to hold two meetings in 2022.

"Up until now, offsets have been a zero-sum game, and buying and selling offsets have not translated into real emissions reductions," Gajjar wrote in an email to GreenBiz. "Article 6 will affect the way the private sector achieves its goals. It may open the door for the private sector to contribute to reducing global emissions."

Companies that purchase offsets and the projects that create them participate in offsets, and organizations that deal with verification will disagree that voluntary offsets do not result in any tangible carbon emission reductions. But everyone agrees that getting clearer guidance, especially when calculating offsets from one country to another, will help build trust in the carbon market.

Experts said that the biggest advantage of passing Article 6 is that it solves how to avoid double counting emission reductions when trading credits between countries. This problem hindered the adoption of the framework during the first two COPs.

Under the new plan, countries that generate and host carbon emission reduction credits can decide to sell them or use them to violate their nationally determined contribution (NDC) goals. If it is sold, the seller’s country will add one emission unit, while the buyer’s country will deduct one, basically keeping the balance. 

"[This rule] avoids the feeling that it might end up being carbon colonialism," Heuberger said. "The important thing is that the host country is in a dominant position and they can make a decision. You don't want to deprive Senegal [for example] the opportunity to decarbonize."

There are some disagreements regarding the impact of Article 6 on the voluntary carbon market. South Pole, a consulting firm, supports the theory that Article 6 will not have much impact on the internal operations of companies that purchase offsets because they are not working towards mandatory NDC goals like the state, and therefore will not “export” credit. 

WRI's Gajjar believes that further clarification is needed to resolve the credit situation that has not been authorized and adjusted for the NDC. Gajjar wrote in an email: “To some extent, Article 6 has begun a debate about the shape and form of the voluntary market, and may affect how it will evolve over time.” “Adjustment The subsequent credit will be used for offset purposes, and the unadjusted credit can be used for other purposes."

But most experts believe that the Article 6 agreement will help increase investment in carbon credit projects and the demand for credits. They say that increased demand and financing should, in turn, increase the value of carbon credits—helping more ambitious climate mitigation projects finally start.

According to South Pole, many low-hanging, low-cost relocation projects have been completed. Now, due to the anticipated price increase, more expensive products may become possible-this can unlock new financing and allow them to finally get started. 

“Article 6 is very suitable for voluntary markets because it usually supports international cooperation and carbon credits, which are a key financial instrument,” Heuberger wrote in an email. "So I hope Article 6 can help the market gain more credibility."

Correction: The Clean Development Mechanism (CDM) in the Kyoto Protocol was established in 1997 instead of 1992.

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